MUMBAI, Feb 3: Disappointing markets and the industry, RBI Governor Raghuram Rajan today left interest rate unchanged, saying there are no developments to warrant further easing since the unscheduled rate cut about a fortnight ago.
RBI kept the benchmark repurchase rate at 7.75 per cent, but cut the statutory liquidity ratio (SLR) – the amount of funds that lenders must set aside – by 50 basis points to 21.5 per cent of deposits from February 7, a move that will help banks to increase lending.
Rajan also hoped that more banks will pass on the rate cut announced last month to the borrowers. Only a few banks had lowered their rates after the cut.
Announcing the sixth bi-monthly monetary policy review, Rajan said: “Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank of India to await them and maintain the current interest rate stance.”
Stock markets fell sharply soon after the policy was announced, with banking stocks hit the worst.
RBI announced a slew of initiatives to develop markets, including allowing foreign institutional investors to re-invest government bond coupons even when their investment limits are exhausted.
To help exports sector, which of late has been struggling following more headwinds in the global economy, it decided to replace export credit refinance facility with the provision of system level liquidity with effect from February 7.
The Central bank reiterated that it wanted more comfort on inflation front and “high-quality fiscal consolidation” as well as signals from Finance Minister Arun Jaitley’s first full year budget, due at month end.
Rajan said inflation was likely to be around the target level of 6 per cent by January 2016 but flagged monsoon, oil prices and “the unlikely possibility of significant fiscal slippage” as upside risks.
Current account deficit was projected at 1.3 per cent of GDP this fiscal and even lower in the next, primarily on slumping international oil prices.
Rajan, who made inflation-fighting a priority since taking over 17 months ago, had sprung a surprise on January 15 when he cut interest rates by 25 basis points in an unscheduled review.
Later, talking to reporters, Rajan said the central bank
will be watching the forthcoming data on inflation and GDP. The first bi-monthly monetary policy for financial year 2015-16 is scheduled on April 7.
He also said that the government has the intent of producing a solid budget. Finance Minister Arun Jaitley will unveil the first full-fledged budget of the new government on February 28.
The monetary policy document said that despite fiscal deficit having touched 99 per cent of the target by November itself, RBI was confident that the government will not miss the budgeted 4.1 per cent target.
On the surprise 25 bps rate cut on January 15, Rajan said the decision was led by falling inflationary expectations and data on weak commodity prices and muted rural wage growth.
“Having committed in public statements to initiate a change in the monetary policy stance as soon as incoming data permitted, the Reserve Bank cut the policy rate on January 15,” he added.
Referring to economic growth, RBI said that though revision in the base year for GDP and calculation methods will mean some revision in GDP growth numbers for 2014-15 as well as in the forecasts, growth expectations should be tempered.
RBI estimates the GDP (under old base year) for current fiscal at 5.5 per cent and 6.5 per cent in 2015-16.
On payments banks and small finance banks as differentiated banks, RBI said it has received 72 applications for small finance banks and 41 applications for payments banks up to the deadline for submission yesterday.
Two External Advisory Committees (EACs) will evaluate the applications received and thereafter make their recommendations to the RBI.
The central bank also increased the eligibility limit for foreign exchange remittances under the Liberalised Remittance Scheme (LRS) to USD 250,000 per person per year from the earlier USD 125,000. (PTI)
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